Last fall, the House passed the Forced Arbitration Injustice Repeal Act – known as the FAIR Act in a 225-186 vote. The groundbreaking bill is a huge win for both consumers and employees. Arbitration has long been an undesirable loophole in the legal system encroaching on rights of Americans.
“Arbitration is one of the central ways in which corporate America has rigged the system against middle-class families and working people,” said Rep. Rosa DeLauro (D-CT).
In relation to consumer transactions, forced arbitration blocks consumers’ access to the court system – in the scenario they are a victim of shoddy manufacturing. These clauses prevent buyers from holding manufacturers responsible for selling defective products.
As a lemon law lawyer, I can tell you that forced arbitration clauses are one of the biggest roadblocks to consumer justice.
What is Forced Arbitration?
In a nutshell, forced arbitration occurs when a consumer is not able to take a dispute to court. In regards to a lemon, their only option is to resolve the matter directly with the manufacturer using either a panel of arbitrators or a single arbitrator.
Forced arbitration clauses are very common – and they are often buried in the fine print of purchase orders.
For example, Tesla has a lemon law arbitration clause in their purchase order stating that consumers cannot file a lemon law case in court if defects with the vehicle are not fixed in the first 60 days of ownership. After 60 days, arbitration is the only option. This is what the agreement looks like:
The good news is Tesla buyers can opt out of this clause in 30 days.
As you could imagine, these forced arbitration clauses are specially designed and placed to be unsuspecting and easy to miss. Essentially, these clauses provide a way for businesses to avoid legal responsibility for their negligence – and get out of fairly compensating consumers.
What is the Forced Arbitration Injustice Repeal Act?
The FAIR Act was introduced by Sen. Richard Blumenthal (D-CT) and Rep. Hank Johnson (D-GA). The intention of this bill is to ban businesses from using mandatory arbitration clauses – both in employment contracts and consumer purchase orders.
If the bill passes, consumers or employees who have signed these clauses – would immediately have restored access to the court system. The FAIR Act would void any of these forced arbitration documents that have already been signed.
While the bill has the support of House Democrats, it does not currently have support from Republicans to pass in the chamber – and may face some roadblocks in the Senate. The future of this bill depends heavily on which party takes control of the Senate next month.
When Did Forced Arbitration Become Widespread?
Forced arbitration has been around for decades – applying to both consumers and employees. It became widely used in businesses just after the turn of the millennium. A 2001 Supreme Court ruling of a sexual harassment case in the workplace is what set this phenomenon in motion.
This case – Circuit City Stores Inc. vs. Adams – involved a California Circuit City salesman named Saint Clair Adams. Adams was a victim of harassment by his coworkers for being gay. Unfortunately, Adams had signed an agreement in his employment contract to resolve any and all issues with private arbitration if he wanted to sue.
In federal court, the judge sided with Adams, even though Circuit City argued that Adams had signed an agreement with his employment terms to move his dispute to arbitration. Circuit City then took the case to the Supreme Court, which overturned the lower court’s decision in a 5-4 opinion – citing the Federal Arbitration Act.
This decision by the Supreme Court essentially opened the door for businesses to extend forced arbitration to nearly all employment and consumer transaction contracts.
Why Do Manufacturers Push for Arbitration?
We mentioned earlier that arbitration is a way for businesses to avoid responsibility for negligence. But how?
Forced arbitration means consumers cannot utilize the court system – which was created and is supported by the people. Companies often try to convince consumers that arbitration is a “quicker, easier, and cheaper alternative to court”. In reality, arbitration is NOTHING like the court system.
Lemon Law Claims: Arbitration Versus the Court System
In forced arbitration, the consumer cannot take their lemon law case in front of a jury of their peers – or seek out an attorney to fight for them. Instead, they must take their dispute in front of an arbitrator or panel of arbitrators.
Arbitrators are commonly hand-picked – or in some cases, sponsored – by the manufacturer. So, if your dispute is taken in front of a private arbitrator or panel of private arbitrators, it is almost a guarantee they will side with the manufacturer, not you.
Imagine playing a game of basketball in which all the referees are being paid by the other team to make officiating calls go their way. That’s what arbitration is commonly like.
In fact, research has shown that arbitrators can be biased toward businesses that repeatedly pick them to oversee disputes. Tesla uses the American Arbitration Association (AAA) for all of their cases. The AAA is a private organization – and they may or may not be biased.
For arbitrators, siding with the manufacturer is the same principle as keeping an existing customer happy. Back in 2009, a large arbitration firm got caught red-handed for doing this and being overtly biased against consumers.
Arbitration doesn’t always mean the consumer or employee will walk away with nothing. However, the outcome will likely end up being a low-ball cash settlement.
If you avoid arbitration and utilize the court system, your chances of earning justice under lemon law go way, way up. This is purely due to the fact that you will have a lemon law attorney on your side.
Chances are, you (as a consumer) would be dealing with the lemon law process for the very first time. Manufacturers’ legal teams know this and use it to their benefit. If you choose arbitration, you are essentially an unsuspecting gazelle being circled by a pack of hyenas.
A specialized, trustworthy lemon law lawyer will know exactly how to handle the legal teams of the big automakers. In fact, your role in the lemon law process is to provide all the necessary documentation to prove you have a case, the lemon law attorney will handle the rest.
Plain and simple, arbitration means that no one is truly on your side – and the cards are heavily stacked in favor of the manufacturer. By steering clear of arbitration and opting for a lemon law attorney, you are putting yourself in a prime position to earn the maximum payout.
How Can You Avoid Arbitration?
Hopefully, we’ve sold you on the fact that arbitration is bad for consumers.
When it comes to lemon law claims, arbitration isn’t mandatory. If you aren’t bound by a forced arbitration clause – but have agreed to take your lemon law claim before arbitrators – you can still take your case to court under California lemon law after the ruling.
The bad news here is you will be in a bit of a hole if the arbitrators ruled against you. This information will be brought up in court.
The good news is it’s very easy to avoid lemon law arbitration. The most important thing you can do when buying a new car is to look over the purchase order very carefully for this clause. Like Tesla, these clauses usually have an opportunity to opt-out after a certain timeframe. Be very, VERY sure you do this.
If you have a defective product and the manufacturer tries to convince you to choose arbitration over a lemon law attorney, do not take the bait. To reiterate, they will probably say it’s a “cheap, quick alternative to the court system”. In truth, it’s only “cheap and quick” for them.
In short, never, ever, EVER opt for arbitration in consumer transactions.
When you purchase a vehicle, ask as many questions as possible about arbitration clauses – as well as how to opt-out. If you really want to play it safe, send a copy of the purchase order over to an attorney specialized in the state’s lemon law before you sign it. In the unfortunate situation you end up with a defective vehicle, this could be the difference between getting full compensation and walking away empty-handed.
If the FAIR Act is passed in the Senate, manufacturers can expect President Biden to sign it into law. This legislation would allow consumers bound by arbitration agreements to regain access to the court system – of which their tax dollars pay for. Only time will tell.
For any questions regarding lemon law arbitration – or California lemon law in general – please don’t hesitate to reach out to us. We are happy to answer any questions you may have and guide you in the right direction.
Give us a call at 888-982-6915 or send us a message.